Netherlands

Company Formation

In the Netherlands a variety of partnerships, cooperative societies, limited liability companies, etc. can be formed. The limited liability company entities are either N.V. or B.V. of which the B.V., “besloten vennootschap” (private company with limited liability), is commonly used. In B.V.’s and N.V.’s the liability of the shareholders is effectively limited to the amount which is paid up or to be paid up on the issued shares. Both types of company are separate legal entities which can, inter alia, own and transfer property, enter into contracts in their own name and sue and be sued; neither is transparent for tax purposes. The N.V. and the B.V. are distinguishable in that the latter can only have registered shares, whereas the N.V. can have either registered shares or bearer shares or both.

Furthermore, the law requires that the right to transfer shares in a B.V. be restricted. Two kinds of share transfer restrictions are permitted by law transfers are subject to the prior approval of a corporate body (such as the management board, supervisory board or general meeting of shareholders) designated in the articles of association; - the transferor must first offer the shares to the other shareholders.

The B.V. may choose one of these types of restrictions or a combination of both. Generally, these restrictions are of no practical significance in the case of a B.V. all of whose shares are owned by another company. A B.V. or N.V., hereinafter referred to as “company” or “companies” is incorporated by the execution of a deed of incorporation before a civil law notary in the Netherlands. The deed of incorporation contains the articles of association of the company. The incorporator may be a natural person or legal entity and may have any nationality.

The incorporation can only be effected within three months after a declaration has been obtained from the Minister of Justice to the effect that he has no objection to the incorporation of the company. This declaration can be refused if, in view of the background and intentions of the persons who will be in charge of the future management of the company, it appears that the company may be used for purposes which are unlawful or that its activities may be detrimental to creditors. The Minister can also refuse to grant the declaration if the deed of incorporation is in conflict with the law or contrary to public policy. Furthermore, every company must file certain information in the trade register of the Chamber of Commerce. The articles of association state the authorised share capital, which is the total nominal value of shares which can be issued without amending the articles. The issued share capital may not be less than 20% of the authorised share capital. In general, the entire nominal value of the issued shares must be paid up upon subscription, although this may be limited by agreement to 25%. However, bearer shares must always be fully paid up. Moreover, in the case of an N.V., the law explicitly requires that any premium above the nominal value be fully paid up upon subscription. Shares without a nominal value and non-voting shares are not permitted. In principle, the subscribers remain liable for the amount of the unpaid subscribed capital.

Every company must have a management board which, depending on the articles of association, may consist of one or more managing directors. Both natural persons and legal entities may be appointed as such. The management board is responsible for the day-to-day decisions and administration of the company. The management board, as well as each managing director, is entitled to represent the company, that is, to bind it in transactions with third parties. However, the articles of association may restrict the right of representation of the managing directors. The articles may, for instance, establish a two-signature system pursuant to which the company may only be represented (other than by the management board as such) by two managing directors acting jointly or by a managing director acting jointly with an employee holding a power of attorney. The right of representation of the management board may not be restricted. Managing directors may have any nationality.

The management board is appointed by the general meeting of shareholders. The articles of association may allow for the appointment of the management board pursuant to a binding nomination by, inter alia, a corporate body such as the supervisory board or a particular group of shareholders. Such a binding nomination can be overruled by a resolution of the general meeting of shareholders passed by two-thirds of the votes cast, provided that this two-thirds majority represents at least half of the issued capital. The articles of association may also provide that certain decisions of the management board require the prior approval of another corporate body. This type of restriction of the powers of the management board has internal effect only and may not generally be invoked against or by third parties.

The articles of association of a company may provide for a supervisory board, consisting of one or more supervisory directors. If there is a supervisory board (and this is not usually the case in a small, wholly-owned Dutch subsidiary), its function is to supervise the management board and oversee the general state of affairs within the company in the interest of the enterprise as a whole, including the employees, shareholders and the business generally. A supervisory director is not, save in unusual cases, entitled to represent the company. The supervisory board is appointed by the general meeting of shareholders. The above discussion relating to a binding nomination of candidates for the management board also applies to the appointment of the supervisory board. Only natural persons qualify for appointment as supervisory directors; they are not required to be nationals of the Netherlands.